The Bank of England “will return inflation to its 2% target”, its chief economist has pledged, despite the challenges it faces from rising food and energy costs and falling value of the pound that has made them more expensive.
Huw Pill said he wanted to make it clear to the public that the central bank’s only goal at the moment was to reduce the rate of price growth, in a clear hint that there are more interest rate hikes.
His comments follow an equally harsh warning from Sir Jon Cunliffe, a deputy governor of the Bank, who said his monetary policy committee (MPC) would do “whatever is necessary” to prevent the rising cost of living become a lasting inflation problem.
Pill said he was watching companies to see to what extent wage increases and rising costs of raw materials and components to consumers, further raising prices.
The UK’s main inflation rate rose in May to a 40-year high of 9.1%, but the Bank expects it to continue to rise, reaching 11% in the autumn.
The Bank’s inflation target is 2% and, in response to rising prices, it has raised interest rates five times since December.
Pill said: “I see my role as a member of the MPC being“ in the business of price stability. ”That means returning inflation to the 2% target in a sustainable way. message that a wider audience pulls out my comments this morning, I hope this is it. “
Cunliffe insisted that the central bank will act “vigorously” to ensure that higher inflation stemming from domestic pressures and rising energy and imported food prices do not become “the new normal” for British economy.
“Our job is to make sure that as this inflationary shock hits the economy we don’t find that inflation leaves us as the new normal, the kind of integrated psychology,” he told BBC Radio 4’s Today program.
He added that the Bank’s rate-setting MPC would take steps to deal with rising inflation. “People can be confident that we will act to make sure this doesn’t happen,” he said.
On Tuesday, Cunliffe argued that British households could face interest rates of up to 5% without defaulting on their debts.
He made the claim when the Bank released its latest financial stability report, which said most consumers and businesses in the UK entered the current financial crisis with relatively low debt levels, although it expects that they stretch more in the coming months as growth is weaker and higher. prices sting.
In his interview with the BBC on Wednesday, the bank’s deputy governor said rising inflation was already changing consumer behavior. Cunliffe added that a slowdown in spending was already having an impact on the economy as a whole.
“What we hope is that the reduction in the cost of living will affect people’s spending and this will start to cool the economy, and we can see signs that the economy is already slowing down,” he said.
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The bank has been criticized for being too slow to start raising rates when prices began to rise.
“We’ve raised rates at every meeting in the last five meetings. I don’t think this has ever happened before in the history of the MPC,” Cunliffe said.
The bank raised its key base rate by 0.25 percentage points to 1.25% in mid-June, and some economists have predicted that the central bank could raise rates to 3% by the end of 2023.